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Tankers’ future is bright, but don’t book those yard berths just yet

While plenty of factors give cause for optimism, a question mark looms over the timing of any upturn

There has been a fair amount of upbeat wishful thinking around the tanker market lately. No doubt everyone is willing the period of dismal freight rates to end, so people seize on any signs of hope.

Many tanker owners have convinced themselves that they can take advantage of low shipyard prices because the future is brighter.

An oil price at a three-year high in recent days might be seen as a dampener on demand and bad for shipping. It certainly means higher expenses for shipowners as bunker costs go up.

But some analysts are now banking on $75-per-barrel oil as a catalyst for a major change for crude buyers and tankers.

This is based round the idea that the crude price rise from $28 per barrel will soon lead Opec to end its strategy of holding down production levels. That in turn will bring more crude onto the market and a need for more ships at a time when more cash-strapped operators are scrapping their old tonnage.

But will this definitely happen, given that the kingpin of Opec, Saudi Arabia, is desperate for high crude prices to sell off parts of its state oil company, Saudi Aramco? And should we depend on a rational response from its non-Opec partner, Russia?

Yes, demand for oil is strong, not least because the global economy continues to grow strongly.

But the fact is, much of the high price is caused by geopolitical upheaval, notably fears that Donald Trump will reintroduce sanctions on Iranian petroleum exports, as Gibson Shipbrokers has pointed out.

Still, analysts at finance house Arctic Securities have became the latest market watchers to predict a sea change for tankers within six or nine months. Jo Ringheim and Lars Bastian Osterrung have slapped “buy” notes on two shares, Scorpio Tankers and International Seaways.

“An ageing fleet destined for the breakers, fuelled by environmental regulations, a sliding orderbook, strong oil demand, a turning inventory cycle and ship values hovering near historical lows are all factors that trigger our interest in the tanker space," they wrote.

“All ships will rise with the tide, and we believe it’s time to get onboard as stocks tend to move ahead of rates and values.”

Ben Ognibene, the former Heidmar boss, is setting up his new firm Concord Maritime specifically to take advantage of a change in the tanker market. He described it as having a “lot of upside potential”.

Andi Case, the chief executive of Clarksons, said last month that now is the time to “look seriously at tankers”. There were plenty of positive stories across products and crude oil that supported a case for “stronger tanker markets going forward”, he argued.

This and other bullish statements about the wider shipping markets from Case sit slightly oddly alongside this week’s profit warning from the shipbroker.

Case's view can also be contrasted with that of his president of research, Martin Stopford, who said this week that the overall shipping markets would remain trapped by overcapacity until the next decade.

There is a large shipyard orderbook for new VLCCs and suezmaxes, while aframaxes have been contracted heavily too.

But there are reasons to be more cheerful about the future for tankers from the huge drawdown in oil stocks, which means the overhang of crude stored on land and at sea has been sucked away.

"We are nearing a point at which seaborne crude movements should increase even as new tonnage enters the market. The only question is, when will that turnaround come?"

We are nearing a point at which seaborne crude movements should increase even as new tonnage enters the market.

The only question is, when will that turnaround come? The Arctic Securities sages are saying within six months, while analysts at Fearnleys have said VLCC rates could burst on to $40,000 per day next year and hit $60,000 in 2020.

But there are other views. Braemar ACM tanker broker Michael Anthony painted a dark picture last week.

“I think the rest of this year will be awful. Next year will be pretty dreadful as well,” he told my colleague Geoff Garfield. “You can start looking at the market in a more positive note after that.”

So patience rather than optimism might called be for, but please: no more newbuilding orders.

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Tankers’ future is bright, but don’t book those yard berths just yet

While plenty of factors give cause for optimism, a question mark looms over the timing of any upturn

There has been a fair amount of upbeat wishful thinking around the tanker market lately. No doubt everyone is willing the period of dismal freight rates to end, so people seize on any signs of hope.

Many tanker owners have convinced themselves that they can take advantage of low shipyard prices because the future is brighter.

An oil price at a three-year high in recent days might be seen as a dampener on demand and bad for shipping. It certainly means higher expenses for shipowners as bunker costs go up.

But some analysts are now banking on $75-per-barrel oil as a catalyst for a major change for crude buyers and tankers.

This is based round the idea that the crude price rise from $28 per barrel will soon lead Opec to end its strategy of holding down production levels. That in turn will bring more crude onto the market and a need for more ships at a time when more cash-strapped operators are scrapping their old tonnage.

But will this definitely happen, given that the kingpin of Opec, Saudi Arabia, is desperate for high crude prices to sell off parts of its state oil company, Saudi Aramco? And should we depend on a rational response from its non-Opec partner, Russia?

Yes, demand for oil is strong, not least because the global economy continues to grow strongly.

But the fact is, much of the high price is caused by geopolitical upheaval, notably fears that Donald Trump will reintroduce sanctions on Iranian petroleum exports, as Gibson Shipbrokers has pointed out.

Still, analysts at finance house Arctic Securities have became the latest market watchers to predict a sea change for tankers within six or nine months. Jo Ringheim and Lars Bastian Osterrung have slapped “buy” notes on two shares, Scorpio Tankers and International Seaways.

“An ageing fleet destined for the breakers, fuelled by environmental regulations, a sliding orderbook, strong oil demand, a turning inventory cycle and ship values hovering near historical lows are all factors that trigger our interest in the tanker space," they wrote.

“All ships will rise with the tide, and we believe it’s time to get onboard as stocks tend to move ahead of rates and values.”

Ben Ognibene, the former Heidmar boss, is setting up his new firm Concord Maritime specifically to take advantage of a change in the tanker market. He described it as having a “lot of upside potential”.

Andi Case, the chief executive of Clarksons, said last month that now is the time to “look seriously at tankers”. There were plenty of positive stories across products and crude oil that supported a case for “stronger tanker markets going forward”, he argued.

This and other bullish statements about the wider shipping markets from Case sit slightly oddly alongside this week’s profit warning from the shipbroker.

Case's view can also be contrasted with that of his president of research, Martin Stopford, who said this week that the overall shipping markets would remain trapped by overcapacity until the next decade.

There is a large shipyard orderbook for new VLCCs and suezmaxes, while aframaxes have been contracted heavily too.

But there are reasons to be more cheerful about the future for tankers from the huge drawdown in oil stocks, which means the overhang of crude stored on land and at sea has been sucked away.

"We are nearing a point at which seaborne crude movements should increase even as new tonnage enters the market. The only question is, when will that turnaround come?"

We are nearing a point at which seaborne crude movements should increase even as new tonnage enters the market.

The only question is, when will that turnaround come? The Arctic Securities sages are saying within six months, while analysts at Fearnleys have said VLCC rates could burst on to $40,000 per day next year and hit $60,000 in 2020.

But there are other views. Braemar ACM tanker broker Michael Anthony painted a dark picture last week.

“I think the rest of this year will be awful. Next year will be pretty dreadful as well,” he told my colleague Geoff Garfield. “You can start looking at the market in a more positive note after that.”

So patience rather than optimism might called be for, but please: no more newbuilding orders.